The property oversupply situation in Iskandar Malaysia, Johor, is "likely to get worse before it gets better", said Maybank Investment Bank's research wing in a report, with property values in an increasingly crowded development space possibly declining over the medium term.

In a research note issued by the Malaysian bank on Tuesday (Apr 14) urged investors to be cautious about the region, noting that property transactions and prices in Iskandar have been dropping.

The value of property transactions in Johor had fallen by 33% quarter-on-quarter in the Q4 2014, under-performing the country (-7%) and other major cities such as Kuala Lumpur (-12%) and Penang (8%).

Property prices in Johor were also weaker than that of other cities, with the House Price Index (HPI) contracting 1% quarter-on-quarter. In contrast, property prices in the whole of Malaysia dropped 0.2%, the research paper said.

"The latest statistics reaffirm our view that industrial properties are a better investment choice in Iskandar due to the relocation of small medium enterprises (SMEs) from Singapore and its relatively limited supply as compared to residential and commercial properties," Maybank said.

The research note said that Malaysian developers have scaled back their launches and shifted their product mix to avoid direct competition with Chinese developers, and have lowered sales expectations for their projects at Iskandar.

"Judging from the number of approved high-rise projects, the Iskandar property market could be hit by too much supply of high-rise mixed development projects if there is still no coordinated planning and control - this will induce price volatility," Maybank analyst Wong Wei Sum said in the research.

"The oversupply situation will be exacerbated by the huge incoming supply in 2015/2016, where units under construction have risen 18% year-on-year in 2012 and 2013, respectively."

The research note also raised concerns about "aggressive land-banking activities" by Chinese developers in the already-crowded Iskandar region.

"Without coordinated planning and control, this could aggravate the oversupply situation and induce price wars, especially in the high-rise mixed development segment."

For instance, Shanghai-based Greenland Holdings Group recently expanded its foothold in the space with the acquisition of a 128-acre freehold land in the south of Bandar Baru Permas Jaya. This was after its first purchase of 14 acres of land in Danga Bay in 2014. The company is also looking to acquire about 1,200 to 1,400 acres of industrial land near the Tanjung Langsat Industrial Complex, according to Maybank.

"If this materializes, Greenland will emerge as one of the largest land owners in Iskandar with a total land-bank of 1,342 acres and it would pose strong competition to the local developers," the report said.

Maybank also said it is "cautious" over "massive land reclamation" in Iskandar.

Reclamation works spanning 3,425 acres for the Forest City project has been given the green light from the Development of Environment. The development will spread over a 30-year period, and will consist of four man-made islands reclaimed in four phases.

"The execution and planning of such reclamation projects is complex, especially Forest City, and carry elements of risk and uncertainty. Hence, developers' financial positions are paramount; else we may see projects being abandoned or price wars initiated to clear inventories or reduce sales risks by the developers," Maybank said.

"More importantly, the failure of any of these projects could erode buyers' confidence and perception on Iskandar."

As such, the bank said it remains cautious on property exposure in Iskandar, instead preferring developers with exposure in the Klang Valley and Penang.

Klang Valley, in particular, is preferred because of the upcoming KVMRT and LRT lines, and potential KL-Singapore high-speed rail project, which will end at Bandar Malaysia, Maybank said.

More importantly, the strong population growth potential in Greater KL and Klang Valley - a possible 40% increase to 10 million by 2020 - offers more sustainable demand for properties, it added.

Source: CNA

The wife and I have been raising alarm bells during the past year or so over Singaporeans flocking by the bus-loads to the other side of the causeway to pick up what seemed to be "bargains" offered by private residential property developers in Iskandar Malaysia. While prices are definitely cheap compared to what one can get back home, our major concerns are the humongous number of units that are being put onto the market and whether if there is enough real demand (be it in sales or rentals) to support such huge and rapid roll-outs.

Now that the largest bank in Malaysia has put out its red flag over Iskandar, the wife and I certainly hope that our fellow countrymen will heed the call and be more prudent with their purchasing decisions...

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The wife and I are avid property watchers and self confessed "show-flat fanatics". SG Proptalk is our platform to share our thoughts and experiences on private residential property purchases and investments.

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